Trade Funk

Export statistics only tell half the story about the foreign earnings of Australian companies and are no longer a sufficient measure in a globalised economy.

April 15, 2008

Export statistics only tell half the story about the foreign earnings of Australian companies and are no longer a sufficient measure in a globalised economy. The companies in The Diplomat Global 100 together earn $218.9 billion around the world. According to the Australian Bureau of Statistics, official exports for the same period are $214 billion. However, also according to the ABS, 50 per cent of the official statistics are accounted for by foreign companies operating in Australia. The Diplomat Global 100 foreign revenues include Australian-owned exports and in-country earnings of public companies only. It is therefore possible to surmise that Australian exports and foreign earnings combined total at least $326 billion.

Add to this private companies and New Zealand revenues, which The Diplomat Global 100 does not count, and the level of foreign investment revenue grows further still. Moreover in 2007, national exports grew by just 2.5 per cent when over the same period foreign earnings in The Diplomat Global 100 grew by 15.3 per cent, making the clear case that it is offshore investment that is driving most of the growth for Australian companies.

While Australian exports reflect a bias to Asia, the foreign revenue of The Diplomat Global 100 splits in nearly equal thirds between Europe at $76 billion, Asia at $65 billion and the Americas at $63 billion.

The industry split of revenue from each region differs markedly, reflecting very different regional priorities for Australian business and for the nation. Although mining tops the list for Europe as well as Asia, Europe’s position as the top source of foreign revenue for The Diplomat Global 100 reflects its importance as the global centre of finance. At total revenue of $19.4 billion, Europe is the largest offshore market for Australian financial services. No doubt London, and the UK more generally, are significant. Services and manufacturing also feature strongly at $16.7 billion and $12.8 billion respectively. Agribusiness is marginal at $2.2 billion.

By contrast, and perhaps not surprisingly, the Americas represent the most important market for manufacturers with $21 billion in foreign revenues. This makes sense given the United States is the biggest consumer market in the world. Second is services at $18.8 billion and mining at $13.3 billion.

These figures are considerably different to official export figures of just over $20 billion for the Americas in total, suggesting again that the cash flows for Australian companies emanating from globalisation are considerably in advance of national export figures.

For instance, Australian miners are significant players in South American resource markets where they are responsible for up to a third of Chilean exports and a substantial proportion of Peru’s exports. Moreover, in the United States, before the shakeout in the listed property sector, Australian companies were estimated to own well over 10 per cent of American retail floor space. Of course, not all of the revenue emanating from these assets flows back to Australia but the profits certainly do, helping boost the capital account.

Foreign revenues from Asia are the most revealing. A whopping $49 billion comes from the mining sector – nearly four times the mining revenues of the Americas, and over double the sales in Europe.

By comparison the rest of the mix is very modest; services are $6.2 billion, manufacturing is $5.2 billion, finance $3.7 billion and agribusiness $1.2 billion. On a global basis, Australian business remains firmly fixed in traditional patterns of trade. We ship our commodities to Asia and invest in developed economy services in Europe or the Americas.

The great challenge will be to shift this pattern as the developing nations of Asia develop more sophisticated financial markets and legal systems, as well as wealthier and more urbane consumers.

So far, the signs are not good. The findings in a recent study by the Export Finance and Insurance Corporation (EFIC), called the Global Readiness Index (GRI), found that 65 per cent of Australian businesses with offshore investment plans were targeting either Europe (36 per cent) or the US (29 per cent). Perhaps more encouragingly, China featured at 28 per cent.